What is a Captive Insurance Company?

A captive insurance company is a small insurance company formed which provides insurance coverage for the parent company or companies. It is not created to insure the general public but to serve the risk management needs of the parent and related companies. Captives are designed to provide the opportunity for businesses (and nonprofits) to take risk in their own insurance programs, have been in existence for over 50 years and have seen significant growth. Initially captives were offshore organizations domiciled in Bermuda and Cayman Islands. Today many states in the US have enabled regulation allowing the creation and oversight of captive insurance companies. Captives were originally designed and formed for the very large corporations. Many, if not all, fortune 500 companies have a captive or captives as part of their overall risk management plan. In more recent years captives have become accessible to mid-market businesses as enabling regulation and resources have become available to help serve this marketplace. Further, mid-market companies have been a big part of recent growth. Captives are considered to be a form of self-insurance but the spectrum of risk can vary greatly and can be customized to your risk tolerance and financial resources. Mid-market businesses do not need to be intimidated by the idea of forming their own insurance company. While captive insurance company is not for everyone, it is accessible and valuable enough for many businesses to consider. If you are a large enough organization you can form your own captive and insure the risk associated with your company and its subsidiaries. If you’re not large enough, you can join the other quality companies to create the environment and provide many of the same benefits.